Issue #26                                                                                                March 2021
The Board towards the future
by Professor Pedro Nueno

A board can –and should– contribute greatly to a company. A board should do more than supervise a firm, ensure that it is following the strategy, or meeting the budget; it should go beyond asking the management questions about any difference between proposals and reality. Boards can contribute to making important changes in the evolution of the company. 

Before the onset of Covid-19, I wrote a book that was published in October 2020 under the title Managing with Speed. By 2019, prior to the challenges brought by the pandemic, it had become obvious to me that companies were moving faster. There was more innovation and internationalization, as well as an increasing number of acquisitions (as a way of growing faster or internationalizing). These developments were facilitated by a healthy financial system, which included banks, private equity and venture capital. 

Although we’re still experiencing the difficulties (and the costs) of Covid-19, many companies have recovered from the problems of 2020 and resumed their regular activities. The crisis has wiped out many companies, with some sectors –such as tourism– more affected. Some companies were simply too small, and larger firms in their sectors could provide better services. In addition, due to the slowdown in the financial system, it became more difficult for small companies to get loans. The number of suppliers in many sectors decreased, leaving greater market share to those that remained. As the economy was recovering, the companies that survived moved faster. 

Boards should not be bureaucratic in these situations. Yet some boards start lengthy discussions when they receive proposals from the management. For example, when considering the acquisition of a small company to add sales or an interesting product that can be sold to clients of the acquiring company, some board members will focus on the potential problems. Are we sure that the possible acquisition does not have legal problems? Have we studied this? Are the numbers they have given us (balance, income statement, cash flow forecast) correct? Are they audited by a reliable auditor? What will happen with their management? Will we retain them or should we ask the selling shareholders to compensate the management so they will leave? Sometimes the board launches so many questions about the potential acquisition that, while it’s debating, someone else acquires the target company. Boards are crucial in cases of acquisitions, financial restructuring and industrial restructuring. But, in the current environment, these issues must be dealt with quickly.  

Internationalization is another responsibility of boards. Sometimes, management becomes accustomed to the geographic deployment of the company. If one day a board member says, “I have read in the press that company X (a strong competitor) has entered China through the acquisition of a Chinese company. Should we enter the Chinese market, too?” The answer of the board will be “yes, of course.” Questions about how to do this will then arise. Should we start from zero by opening a branch there, selling through exports at first, with the idea of eventually manufacturing some of our products there? Should we do this while importing others, while exporting some from our China plant? How, when and who? Do we hire a consulting company? Or do we assign the responsibility to one of our managers who has international experience and would not mind spending a lot of time in China and perhaps living there? Are we willing to buy a percentage of a Chinese company and become a partner in a joint venture? Again, in many sectors today, if you don’t enter new markets quickly, you may find that a lot of international companies are already there competing, along with tough Chinese companies. 

Only entrepreneurial boards, rather than bureaucratic ones, can speed up companies. They can do this by accelerating their access to the best technologies, international deployment, continuous creation of value and market leadership. Companies also need boards that have had experience with technological innovation and internationalization. All board members should have a solid knowledge of financial and general management. Having members who have served on the boards of important companies or business associations, or who have held relevant government positions, may bring prestige. But this prestige won’t provide the competitive leadership needed for the company to grow at a reasonable speed. Instead, boards need expertise and knowledge, so they can also attract the best members – whether they be men or women, young or old (in good shape, of course). 

​​​​​Pedro Nueno 
Professor of Entrepreneurship 
IESE Center for Corporate Governance

Corporate Governance News

Activist campaign shakes up Danone’s leadership and shifts focus away from sustainability to primacy of shareholder value
Last year, Danone became the first big listed French company to become a so-called enterprise à mission (or “purpose-driven company”). The status requires not only the generation of profit for shareholders, but for this to be done in a way that benefits customers’ health and the planet. A long and intense activist campaign has put the model to the test… read more ​​(subscriber content)
For the first time, BlackRock to hold companies accountable for Scope 3 emissions data
Scope 3 refers to emissions generated by a company’s products or services, rather than just its own operations. For an oil company, for example, this would include the emissions created when its gasoline is used in a car. Polluting companies must disclose the full scope of their greenhouse gas emissions or risk confrontation with investors at their annual shareholders meetings… read more
The first SPAC to become a public benefit corporation 
At its initial public offering on February 5, Sustainable Development Acquisition I Corp. (SDAC) became the first public benefit corporation Special Purpose Acquisition Company (SPAC). SDAC was created to acquire or merge businesses in the water, food, agriculture and renewable energy sectors that are addressing the global challenges identified by the United Nations Sustainable Development Goals… read more ​​​​​
Wirecard red flags should have prompted earlier response, former executive says 
The Wall Street Journal publishes an interview with James Freis, who has been credited for promptly exposing and stopping the largest financial fraud in Germany's modern history, known publicly as the Wirecard scandal… read more ​​​​​
ESG and human capital management, keys to resilience and transformation
The COVID-19 pandemic materially altered how corporate boards should be thinking about enterprise sustainability through the lens of environmental, social, and governance initiatives. The concept of stakeholder capitalism —and its link to enterprise sustainability— has taken firm root in corporate governance and workforce management. Consistent with the Business Roundtable’s 2019 articulation of the new corporate purpose, 2021 begs for a more expansive view of organizational success —one that puts all stakeholder interests at the heart of the transformation agenda… read more ​​​​​
“Who cares about independent chairs?”
According to this article published by Financial Times, with barely any truly independent chairs at the top-performing companies by market capitalization, the corporate governance advocates need to prove that independence is worth fighting for… read more ​​​​​
Norway wealth fund considers how to ensure quality in corporate audits 
Norway's $1.3 trillion sovereign wealth fund, the world's largest, is considering how to ensure high quality audits are conducted in the roughly 9,100 companies in which it invests, a top fund official told Reuters… read more ​​​​​

In Case You're Interested...

Business Roundtable: re-conceptualizing the corporation?

This podcast talks about the evolution of the 180 signatories of Business Roundtable in August 2019. They interview Reuter’s corporate governance reporter, Jessica DiNapoli, who recently published an article (Investor payouts and job cuts jar with U.S. companies' social pledge) that delved into how the behavior of those 180 companies has evolved since Business Roundtable... listen here ​​​​​

How corporate purpose affects firms

A company’s purpose is a core aspect of the organization: it influences the financial performance of the company, and relates to its ownership characteristics, compensation policies, and strategy. This piece is adapted by University of Chicago Booth’s ProMarket from a presentation given during a 2020 conference on corporate governance and purpose, organized by the IESE Center for Corporate Governance and the European Corporate Governance Institute… read more ​​​​​

2020-2021 NACD Trends and Priorities of the American Boardroom

The National Association of Corporate Directors (NACD) has released its annual report, which provides an overview of the issues and trends that public and private company directors deem most likely to impact their boards in the coming year. It also analyzes their views about how effectively their boards allocated agenda time in 2020 and highlights where they seek to improve their performance over the current year… read more ​​​​​

Purpose for asset owners: climbing a taller mountain 

According to McKinsey, the world’s pension funds, sovereign-wealth funds, and endowments are no strangers to purpose —they intentionally strive to create positive societal impact. After all, they have long been using purpose as a not-so-secret weapon to attract talent while competing with higher-paying private-sector investment managers. Amid the pandemic, many institutions are redefining, or simply sharpening, their emphasis on purpose, with promising implications for their constituents and the societies in which they operate… read more ​​​​

What happened when India mandated gender diversity on boards

In recent research on diversity quotas in India, one of the first instances of an emerging market adopting gender quotas, Ruth V. Aguilera, Venkat Kuppuswamy, and Rahul Anand found that firms’ gender quotas represented a step in the right direction but did not go far enough. Firms which, at face value, seemed to be complying with gender quotas by appointing women on merit from outside the organization, still “buffer” their existing activities through selective committee appointments, relegating the new female quota fillers to less consequential committees. For gender quotas to achieve their purpose as an internal corporate governance mechanism, corporate boards must embrace the appointment of well-qualified women who bring a valuable perspective to the board… read more ​​​​​

IESE's Recent Research on Corporate Governance 

“Research on the Competitive Consequences of Common Ownership: A Methodological Critique”

Journal article (January 2021)

Authors: Azar, J., Schmalz, M. C., Tecu, I. 
Journal: The Antitrust Bulletin
Read more

“Predicting Employee Wrongdoing: The Complementary Effect of CEO Option Pay and the Pay Gap”

Journal article (January 2021)

Authors: Stephen J. Smulowitz, John Almandoz 
Journal: Organizational Behavior and Human Decision Processes
Read more

“The Big Three and Corporate Carbon Emissions Around the World”

Journal article (December 2020)

Authors: Azar, J., Duro, M., Kadach, I., Ormazabal, G. 
Journal: Journal of Financial Economics
Read more

IESE CCG-ECGI Corporate Governance Conference


In the context of the current shareholder vs. stakeholder debate, the IESE Center for Corporate Governance (IESE CCG) and the European Corporate Governance Institute (ECGI) organized the “Can Purpose Deliver Better Corporate Governance?” Conference, which took place on October 28-30, 2020

Leading scholars together with prominent CEOs and board directors, delved into some of the pressing issues surrounding corporate purpose and governance. Over 1,900 people participated in the conference. 

The conference sessions are now available for viewing and you can download the conference report. Find all the papers and presentations on the conference website under the tab "Program & Papers". 

Upcoming Programs

Executive Program: “Consejos de Administración Responsables”

Date: March 16-17, 2021

Location: IESE, Madrid Campus

Visit the program website

Executive Program: “Mujeres en Consejos de Administración”

Date: April 12-13 and May 10-11, 2021

Location: IESE, Madrid Campus

Visit the program website

Executive Program: “Value Creation Through Effective Boards”

Date: May 24-27, 2021

Location: IESE, Barcelona Campus

Visit the program website
A Way to Learn. A Mark to Make. A World to Change
Barcelona    |     Madrid     |     New York     |     Munich     |     Sao Paulo